The Australian dollar was more than a full US cent higher today, bouncing from its intraday lows as Asian equities and US equity futures rose.
At 1700 AEDT, the local unit was trading at 99.68 US cents up from 98.57 cents yesterday.
Since 0700 AEDT on Tuesday, the Australian dollar traded between 98.64 US cents and 99.69 cents.
The Australian dollar dipped to its intraday lows after the federal government released its Mid-Year Economic and Fiscal Outlook (MYEFO).
The document showed a surplus of $1.5 billion for the 2012/13, less than its May budget forecast for a surplus of $3.5 billion.
The projected deficit for 2011/12 has blown out to to $37.1 billion from the $22.6 billion forecast in May.
Commonwealth Bank currency strategist Joseph Capurso said equities and equities futures rose on Tuesday as traders went bargain-hunting.
"The Dow Jones futures index started to recover. That pushed up the Aussie and the Euro and many of the other currencies against the US dollar," he said.
"At the beginning of the day, the Dow Jones futures were down. I think it got a bit oversold, then the Aussie (dollar) followed it up."
Mr Capurso said the market would be awaiting more news about the eurozone government debt situation with a particular focus on whether the International Monetary Fund (IMF) will help to bail out debt-laden European nations.
"They're still looking for the latest headlines out of Europe tonight.
"If the IMF would deliver more detail that could give a boost to the Aussie and the euro as well."
At 1700 AEDT, the Australian dollar was at 77.83 Japanese yen, up from Monday's close of 76.50 yen, and at 74.59 euro cents, up from 74.06 euro cents previously.
Meanwhile, Australian bond prices fell despite earlier rising on weaker federal government economic forecasts.
The MYEFO cut the the Australian economic growth for 2011/12 to 3.25 per cent from the 4.0 per cent projected in the May budget.
The consumer price index forecast was cut from 2.75 per cent to 2.25 per cent for the same period.
UBS interest rate strategist Matthew Johnson said the downgrade contributed to the case for the Reserve Bank of Australia (RBA) next week to cut the cash rate for a second month in a row.
At its November meeting the RBA cut the cash rate from 4.75 per cent to 4.5 per cent.
"All of those things add up to another reason to think that the RBA is going to cut rates," Mr Johnson said of the central bank's next board meeting on December 6.
"If you weren't already over the line (on expecting a rate cut) you're probably over the line now."
At 1630 AEDT the ten-year bond price was 96.000 (implying a yield on 4.000 per cent), down from 96.085 (implying a yield of 3.915 per cent) on Monday.
Three year bonds were at 96.860 (implying a yield of 3.140 per cent), down from 96.930 (3.070 per cent) on Monday.
The RBA's trade weighted index was at 74.1 on Tuesday, up from 73.4 on Monday.
